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SEN. DODD: The meeting will come to order. We're here this afternoon for two purposes, the first of which I don't think we're going to get to because I don't see 12 of us here yet, and I don't want to delay the hearing. What I'd like to recommend, and I've already chatted briefly with Senator Shelby about this, is on the executive session nominees that there's going to be a vote sometime I think tomorrow morning on the Tobacco Bill, and my recommendation would be during that vote or right after that vote we meet to consider these executive session nominations.
I think based on conversations they should be relatively non controversial. I'd invite my colleagues to take a look at them, let me know if there is some problem that would require some further discussion, and we'll save it for another moment.
But if we could do it tomorrow, that will save us waiting around. Yes, Bob.
SEN. ROBERT MENEDEZ (D-NJ): Senator, the FAJ nominee, I'm just curious about the status. I know that obviously it's --
SEN. DODD: Which one is it?
The FAJ nominee. It's not on here. I'm just curious about where we are there. I know it's a very important position and a very important time.
SEN. DODD: Well, let me turn to Senator Shelby for any comment.
SEN. RICHARD SHELBY (R-AL): If I can answer that, there's a HUD investigation going on as I understand it and from staff dealing with the RESPA and in some of the companies. We don't know if he's involved or what. But we're waiting to see what comes out of the investigation. So that's my interest is making sure that all nominees are, and I feel like he will probably be okay, but we want to make sure. So I'm waiting for a little more information before I agree to moving forward.
SEN. DODD: Let me just say that I don't know Mr. Stevens personally. I've never met the man. But he comes highly recommended, I must say, by people who are knowledgeable. In fact, Senator Martinez and I have talked about it. I think, Bob, you and I have talked about him. I have constituents in my state that are very knowledgeable about FHA work, and I know Mr. Stevens well. And I've recommended him highly. Senator Shelby points out some issues that, candidly, the committee could not ignore in the midst of all of this. I've talked to the secretary of HUD about the nominee and what steps they might be willing to take and provide some assurances to the committee.
Ideally we'd rest and go on to other matters. I just don't believe that necessarily forcing this on the committee, I'd like the consultation and advice of my colleagues as well on a matter like this, rather than just bringing up the matter without any -- I always like on these matters, where we can, to have a bipartisan support for a nominee, other than getting into an acrimonious battle, and particularly if there's an outstanding issue we're all aware of what can happen. That sounds fine in this letter, but six months from now, a year from now, something pops up and now discussions are to us, well you had some idea this might happen, why did you go forward? I'm not sure that always ought to be the standard if there's anything out there, but nonetheless that's sort of where we are, Bob, on this one. Do you have any comments you want to make? Mel?
SEN. MEL MARTINEZ (R-FL): I'd just say, I was talking to the HUD secretary and I think he's gone out of his way to try to alleviate those. I will say that based on what I know about the case, and I hope, and I know we're going to do some more due diligence apparently, but we wouldn't have anybody serve in the administration, I think, or maybe in any other body. These are not to him personally to my knowledge, but in any event I appreciate it. I just, I know he does come highly recommended, but there may be some issues. And I certainly will defer to the chair and ranking member to ensure that there's no problem.
But it's a pretty important position that is not in place and he does come very, very highly recommended, so.
SEN. DODD: Senator Shelby again?
SEN. SHELBY: I'd just like to say again that this gentleman might be very well qualified. He might be pristine clean. I hope he is. I've heard good things about him. But I think that we ought to, where there's a HUD investigation involving one of these companies that he was involved with, we ought to have a clean bill of health from the man before I vote on him. I don't know, you vote at your peril up here, but I've been here a few years.
SEN. DODD: Okay. Let me also, I just want to make a couple of observations about the hearing today. Because of the rulings on the crisis or bankruptcy at the Supreme Court last evening, Mr. Bloom, one of our witnesses here, was unable to have his full testimony ready for us on time yesterday, and we'll give you a waiver on that knowing how busy you were. Normally we like to get this testimony, but understanding the circumstances -- although the members are highly, are rightly concerned that testimony was not delivered here until 11:30 today. And our committee has strict rules on this. I know that you're aware of that, but I do understand the problems of the last evening.
And as members of the committee understand General Motors Corporation filed for protection to Chapter 11, the Bankruptcy Code on June, I have therefore been informed that Mr. Bloom may not be able to answer questions that bear on specific matters that are the subject of that ongoing litigation.
And so if that's the case, a question may be asked that you'll have to respond accordingly, Mr. Bloom.
I raise those two issues that have been brought to my attention.
I want to welcome our two witnesses as part of the table.
I'm going to take a couple of minutes here in an opening statement, turn to Senator Shelby, and then we'll get to the hearing.
Let me just say at the outset what the bottom line for me is, and every member here will have a different point of view. Getting out of the automobile industry by the United States government yesterday would not be soon enough for me. My hope is that whatever else, whatever we like or dislike about the present configuration, that I want to see us get out of this business as quickly as we can. That's my interest. Obviously there are matters to discuss on how this is all working, but I start any discussion to date from that point of view.
And again my colleagues will express their own views on the matter, but from my standpoint here it can't be soon enough for that matter. So I want to welcome our witnesses, both Mr. Bloom, Dr. Montgomery, to the third in this committee's series of hearings on the state of the American automobile industry.
Today's hearing is unique because for the first time we'll be hearing directly from the administration officials overseeing federal assistance to America's domestic auto industry. Failure of any one of Detroit's Big Three poses obviously I believe a grave systemic risk to the economy, threatening hundreds of thousands of jobs, directly provided by these companies, and imperiling over a million more jobs in related industries, from suppliers to car dealers, some 20,000 people in my home state of Connecticut alone that are directly employed or indirectly by the automobile industry.
It is for these reasons that President Bush and later President Obama marshaled the resources of our government, not only to preserve countless American jobs but to help reestablish a foundation for a viable and competitive domestic auto industry. With General Motors and Chrysler buckling under colossal liabilities racked up after years of incompetent management, although $170 billion in debt for General Motors and $55 billion in debt for Chrysler, the Obama administration's Auto Task Force helped develop a plan to recapitalize and overhaul the industry's strategic financial and organizational structure.
The plan has largely been adopted as part of the prepackaged GM and Chrysler bankruptcy proposals. I believe that once finalized they will result in the savings of thousands of American jobscertainly that's my hopeand potentially the preservation of a very critical manufacturing sector.
Nonetheless, communities all across the nation are not going to be spared plant shutdowns, dealer closings, mass layoffs. Moreover, if approved, the deals that now we know about will continue to raise important questions over unprecedented government involvement in private industry's restructure. To me these questions can be summed up as follows.
How exactly are taxpayer dollars being used to restructure the auto industry?
Why is the government taking such large ownership stakes in these companies?
Is the government doing everything it can to protect American jobs?
What assistance is being provided to communities devastated by auto plant and dealer closings?
And when can we expect the American taxpayer to receive a return on the investments that we've made?
Before turning to my colleague from Alabama, I would like to address what I regard to be a false debate percolating over the treatment of key stakeholders. Some critics have decried the restructuring plan as a windfall to auto workers. They point to an arrangement in which creditors are being asked to forgive debt for a smaller stake in the company than being offered to the employee health care trust known as VIBA. In the case of the GM proposal for example, bondholders will be asked to forgive 27 billion in debt in exchange for equity in the company. They are being offered 10 percent equity plus the option to acquire an additional 15 percent later on.
The VIBA on the other hand will forgive half of its remaining $20 billion in debt in exchange for acquiring 17.5 percent of GM's common stock, 6.5 billion in preferred shares and 2.5 billion and a 2.5 billion note. But as I'm sure our witnesses can explain, VIBA's debt forgiveness and equity stakes do not reflect the extent of the auto- workers concessions. Indeed, the companies have announced tens of thousands of layoffs as a result of the restructure. Retirees are being told they will lose 30 percent of their health benefits as well as pension benefits. In GM's case alone, 21,000 additional people are likely to lose their jobs as a result of the bankruptcy, and many UAW wages will be slashed below foreign transplant wages.
The courts have been reviewing these structuring proposals to ensure an equitable outcome for auto workers as well as other stakeholders. Hundreds of thousands of Americans and countless businesses will be affected by the courts decisions. It is for this reason that the president was right in my view to task his administration, not only with assisting GM and Chrysler, but with addressing the effects of the auto industry's years of downturn on various communities.
But the president's plans are not without controversy. One aspect of the government's proposal is unprecedented. That is, the government's taking a huge equity stake, 8 percent in Chrysler and a whopping 60 percent in General Motors. Understandably the administration believes that this structure avoids the imposition of further debt on these companies. But it also begs the question, how will the government extricate itself from such a commitment in the future?
As Richard Posner recently wrote in an essay in the Atlantic Monthly, and I quote him: "We should be concerned lest GM become a kind of economic Vietnam and the federal government throws good money after bad year after year in baying quest for victory," end of quote.
I know that our witnesses today stand fast against such a notion. They have worked tirelessly, I want to say, to establish the domestic auto industry's viability. But they also have toiled to rekindle our competitive edge in a truly iconic sector of the United States economy. Let us remember, not too long ago it seems that American could not walk a city block without sensing the strength of an American automaker's brand. Their labels adorn buses, railcars, aircraft; they dominated the U.S. automobile markets, in fact the global market in many ways. And owning a Buick was the stuff of American dreams. Today those images have faded. For the first time the domestic market share of Ford, Chrysler and GM have slipped below 50 percent, going from 66 percent in 2001 to just 40 percent today, 47 percent in today's market.
U.S. industry has long abandoned a diversified product mix and instead has had to play catch-up with foreign transplants. Only now have they recognized that they must shift their focus from SUVs and pick-ups to marketing more fuel-efficient automobiles.
Fortunately one thing has remained constantthe skill, determination, and ingenuity of the American worker. Even in tough times, Americans are resilient, and they are certainly proving it these days. And given the proper tools, our domestic auto industry I think will keep fighting until we are back on top once again. And I believe that can happen.
So I look forward to the hearing today on how you, Mr. Bloom and Dr. Montgomery, are helping set the stage for such a come-back in our country. Indeed, Mr. Bloom has been intimately involved I would point out in negotiations with various stakeholders, as well as the decisions on how best to invest taxpayer dollars in GM, GMAC and Chrysler.
I look forward to exploring the rationale behind these decisions, and the administration's plans for the future.
Dr. Montgomery is tasked with a far different and a far more difficult responsibility, and that is to steer federal assistance to communities devastated by auto-related job losses, plant closings and dealer consolidations. So I look forward to hearing about your travels around our nation and learning of the resources you believe are required to coordinate these recovery efforts.
And with that, let me turn to my colleague from Alabama for any opening comments, and then we'll hear from our witnesses.
SEN. SHELBY: Thank you, Mr. Chairman. When the Detroit Three came before this committee to ask U.S. taxpayers for bail-out money, they cited the financial crisis as the reason for their troubles. The financial crisis was certainly a reason, but it was by no means the only reason these companies were failing. Although structural and managerial problems in these companies were decades in the making, they managed to convince Congress and the last administration that bankruptcy, the normal course for companies in their condition at that time was not an option, even if it came with government financing.
This was a few months ago. Instead they said they just needed some cash to make it through until the economy returned to normal and consumers started buying cars again. Combined, the two firms received then $24 billion. These initial billions however were not enough to prevent the inevitable from happening. Both Chrysler and GM have now entered Chapter 11 bankruptcy process, and each company once again needs additional taxpayer support.
The Obama administration has set forth a plan for the two companies' post bankruptcy. Choosing to bypass the normal bankruptcy process, the administration presided over the restructuring through an alternative ad hoc process. Today's hearing I hope will give us the opportunity to understand how the administration came to the conclusion that this support was warranted and expectations about how the new taxpayer investments will be managed and ultimately unwound.
I look forward today to understand what considerations drove the outcomes of both the GM and the Chrysler negotiations. Why didn't the administration address the significant excess capacity in the U.S., possibly by merging Chrysler and GM? Why did the administration instead favor a merger between Chrysler and the Italian carmaker Fiat and on what did the administration base its conclusion that the new Chrysler will be viable in the long run?
Did the administration take into consideration the effects that the aid to GM and Chrysler would have on other auto manufacturers in the U.S.? What underlays the determination that the U.S. Treasury should hold approximately 10 percent of the new Chrysler and 60 percent of the new GM?
By taking such significant equity stakes in the two companies, the administration has embarked on the disturbing and I believe a difficult road. We've been assured that the administration will stay out of day-to-day management and that it will not allow politics to influence the decision-making process within the companies. On the one hand, that's very reassuring.
On the other, it illustrates the inherent difficulty posed by large government interventions in private markets. If the government intends to be a silent partner of sorts, how do they intend to protect the interests of the American taxpayers as a shareholder? I'm not sure you can have it both ways.
Restraint may be difficult when jobs are at stake. Plants need to be closed and environmentally friendly vehicles proved not to be commercially viable. Given the government's bigger investment in GM than in Chrysler, will it make decisions that favor the former at the expense of the latter?
Will the administration be tempted to use political means to boost annual car sales in an effort to shore up the perceived viability of the two companies? The most difficult question of course is how Treasury intends to get out of this.
Are our assurances that the government's involvement in the auto industry will be temporary realistic? Did the administration, as any private investor would, work through possible exit strategies before making its investment?
Another question: Does the administration anticipate that the taxpayer will make money on his investment, and if so, how? And do the write-offs that it has already taken in connection with its investment in these companies foreshadow more losses to come? Does the administration here envision a long-term government participation in the auto financing industry?
Of course government action is not the only factor at play in determining the ultimate outcome for GM, Chrysler and the taxpayer. Private sector responses are critical. Will the private sector lend to or do business with these companies? Will there ever be private sector interest in owning these companies, particularly if the government retains and ownership interest?
I look forward to hearing the administration's thoughts on these and other issues this afternoon, and I commend you, Mr. Chairman, for calling this hearing.
SEN. DODD: Thank you very much.
We have now a quorum and I'm going to move into executive session if we quickly can and deal with these two nominees. As I note, we do have a quorum and I ask the committee to proceed in executive session.
I ask for the committee to consider the nomination of Herbert Allison to be the assistant secretary for Financial Security within the Department of the Treasury. All those in favor of reporting out the nominee, signify by saying aye. (Ayes.) Those opposed, no. They ayes appear to have it. The ayes have it.
I ask further that the committee consider the nomination of Mercedes Marquez to be the assistant secretary for Community Planning & Development at the U.S. Department of Housing and Urban Affairs. All those in favor of reporting this nominee say aye. (Ayes.) Those opposed, nay. The ayes appear to have it and the ayes have it. The nominees are hereby reported and the executive session is adjourned.
And with that we'll turn to our two witnesses. Ron Bloom is a very experienced individual, advising labor and business leaders. It qualifies him, I think, to assist the secretary and members of the auto task force because he served for 13 years as the special assistant to the president of the United Steelworkers, a founding partner of the investment firm, banking firm of -- I think Keilon or Keilon -- (uses different pronunciations) -- Keilon & Bloom.
MBA from Harvard and a graduate of Wesleyan University in Connecticut. So we have thank -- you have Wesleyan connections at this dais as well, buddy, I would point out.
And Ed Montgomery, Dr. Montgomery, joins us as President Obama's director of Recovery of Auto Communities and Workers. He formally left his post as dean of the College of Behavior and Social Sciences at the University of Maryland, attended Penn State University and earned a Ph.D. in economics from Harvard. And we're delighted to have both of you with us.
And we'll begin in the order I've introduced you. So, Mr. Bloom, you're up first.
MR. BLOOM: Thank you.
SEN. DODD: Try and keep your remarks relatively brief. I'm going to save all of my colleagues' testimony, evidence, supporting documents. They'll all be included as part of the record.
MR. BLOOM: Yes, sir. Good afternoon, Chairman Dodd, Ranking Member Shelby, members of the Senate Banking Committee. Thank you for the opportunity to testify before you today.
First let me apologize for the snafu with getting the material to you late, and appreciate your indulgence on it, and commit to you it will not happen again.
Over the past several months the Obama administration has been working to manage an historic crisis in the American auto industry. President Obama inherited an auto industry that has lost 50 percent of its sales volume and over 400,000 jobs in the year before he took office.
Two companies, General Motors and Chrysler, had received substantial loans from the prior administration and were requesting substantial additional assistance that only a government could provide. Without this assistance, both of these companies faced uncontrolled bankruptcies and almost certain liquidation, which would have caused significant job loss with a ripple effect throughout our entire economy.
Even so, President Obama was unwilling to put additional taxpayer dollars on the line unless these companies and their stakeholders were willing to fundamentally restructure, address prior bad business decisions, and chart a path toward long-term financial viability without ongoing government assistance.
Therefore, the president decided to give both GM and Chrysler a chance to work with their stakeholders and secure the sacrifices necessary to make them stronger, leaner and more competitive in a way that would justify an investment of additional taxpayer dollars.
In only a few months, both GM and Chrysler, working with their stakeholders and the president's auto task force, have achieved a level of restructuring that many thought impossible, positioning both companies for future viability.
As a result, the president has decided to stand behind these restructurings with additional financial assistance. Consistent with prior administrations' actions, this assistance is being provided from the U.S. Treasury out of the TARP program.
After proceeding through a fair and open bankruptcy process, the new Chrysler-Fiat alliance closed its sale agreement earlier today and has now emerged from bankruptcy. Its future is in the hands of its executives, managers and workers, as it would be for any private company.
While General Motors is likely to take somewhat longer to move through the bankruptcy process, we are confident that it too will emerge quickly as a stronger, more viable global company. Because GM needed substantial capital that only a government could provide, and because we were committed to not piling irresponsible amounts of new debt on top of the new GM, the U.S. government will become a reluctant shareholder in General Motors.
The administration did not seek this outcome, but arrived at the conclusion that it represents the most responsible way to protect taxpayers while giving GM an opportunity to succeed. As the president made clear, we will manage this investment commercially and exit our position as quickly as is practical.
Both the GM and Chrysler restructurings have required deep and painful sacrifices from all stakeholders, including workers, retirees, suppliers, dealers, creditors and the countless communities that rely on a vibrant American auto industry.
But the steps that the president has taken have not only helped to stabilize the auto industry and saved hundreds of thousands of jobs, but for the first time in decades they have also given GM and Chrysler a chance to become viable, competitive American businesses with bright futures.
Before taking your questions, I want to give a brief overview of the process the administration has taken in addressing these issues. On February 15th of this year, the president appointed an auto task force to oversee his administration's effort to help support and restructure the industry.
The task force is co-chaired by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, and includes representatives from a broad range of agencies and offices throughout the executive branch. The task force is staffed by a joint Treasury/NEC team, of which I am a senior member. This team reports to the task force and its co-chairs, who report up to the president.
From the beginning of this process, the president gave the auto task force two clear directions. The first was to refrain from intervening in the day-to-day management of these companies. Our role has been to act as a potential investor of taxpayers' resources, and as such we have not become involved in specific business decisions like where to open a new plant or which dealers to close.
This is the job of management. And while we have been engaged in dialogue and discussion about their approach, we have not substituted our judgment about specific decisions for theirs.
Second, the president was clear that he wanted us to behave in a commercial manner. That is, to be sure, that all stakeholders are treated fairly and received neither more nor less than they would have, simply because the government was involved.
Because the investments that were made by both the prior and current administrations to support the auto companies have come from the TARP, the task force and its staff activities have been subject to the full range of disclosure and reporting requirements under the EESA statute.
This includes oversight by the GAO, EESA's Financial Stability Oversight Board, the special inspector general for TARP, or SIG TARP, and the congressional oversight panel established under EESA, as well as required reporting to multiple House and Senate Committees.
In a better world, the choice to intervene in these companies would not have had to have been made, but amidst the worst economic crisis in three-quarters of a century, the administration's decisions avoided a potentially devastating liquidation and put a stop to the long practice in the auto industry of picking hard problems down the road.
While difficult for all stakeholders involved, these restructurings provide GM and Chrysler with a new lease on life and a chance to fundamentally restructure and succeed. Thank you.
SEN. DODD: Dr. Montgomery, welcome.
MR. MONTGOMERY: Thank you, Chairman Dodd, Ranking Member Shelby and members of the committee. I appreciate this opportunity to appear today to discuss assistance that's being provided to and being sought by communities and workers affected by auto job losses.
As you are well aware, the current recession is arguably the most severe since the Great Depression and has had a profound impact upon our businesses, workers, home owners -- and home owners throughout the country. As striking as this decline has been for the country as a whole, the situation is even more severe in much of the auto manufacturing heartland.
Just as Mr. Bloom has discussed the challenges to our two biggest auto companies, or two of our biggest auto companies, and the steps we are taking to help meet these challenges, I want to briefly discuss the process we have begun to help the hundreds of auto communities struggling to deal with rising unemployment.
When President Obama appointed me as the new director of Recovery for Auto Communities and Workers, my mandate was to cut though red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities and regions that have historically relied upon the auto industry.
The administration is developing a comprehensive effort that will help lift up the hardest-hit areas by using the unprecedented levels of resources and funding provided by the Recovery Act and available though the regular government programs. We have also been engaged in our effort to identify new initiatives that may be helpful going forward in this effort to support the auto community.
Upon appointment, my first order of business was to get out and directly hear from affected workers, businesses and the communities. We've held town halls and meetings in Michigan, Ohio, Indiana with hundreds of stakeholders to identify ways in which the federal government can be helpful. We plan to continue these sessions in a broader range of communities in the weeks and months ahead.
These sessions have been more than just listening tours. We've established an interagency team, including representatives from the Department of Labor, Energy, Commerce, Small Business Administration, Transportation, Justice, Health and Human Services, EPA and Treasury that have accompanied me to these meetings to hear firsthand what works and what doesn't. As a result, they have already started implementing next steps in working with local officials on how to address problems and issues that are raised.
The Recovery Act has made possible a wide range of investments in auto and other communities that both combat the current economic development and begin to transform our economy for future long-term growth.
Some examples of ways agencies have targeted support for auto communities in particular include the General Service Administration's accelerated purchase of over 17,000 new fuel-efficient vehicles, adding over $280 million in demand for new cars.
Secretary Solis from the Department of Labor announced the $50 million targeted Green Job Training Initiative that is targeted towards auto communities. In January, the Department of Labor also announced since January over $16 million in national emergency grants to support dislocated auto workers in various states.
Recently Secretary Duncan announced $7 million in a special competitive grant to establish innovative and sustainable community college programs that prepare displaced auto and other workers for second careers. This grant program will be used to develop national models that have been replicated across the country.
The Small Business Administration has announced extensions to its 7(a) lending program and recently announced the development of a floor plan financing program for auto dealers, RV dealers and boat dealers.
And EPA has announced millions of dollars in grants to help revitalize former industrial and commercial sites in auto and other communities. Recently Michigan was the largest recipient of those funds.
One of the most pressing challenges is to ensure that auto communities have access to existing federal programs and new funding available under the Recovery Act. We've taken steps to ensure that auto communities have an equal chance to access federal funds.
Some examples of that include the Department of Energy recently held workshops for county and local municipalities to train leaders on how to apply for the Energy Efficiency Conservation Block Grants.
The Department of Energy also held meetings with local business and financial officials to talk about how to make sure small businesses can access their new loan guarantee programs. The Commerce Department, though the Manufacturing Extension and the Economic Development Administration, have held numerous workshops in the auto regions to help companies diversity and provide tailored assistance, as well as to help regions with their strategic planning.
And recently, the Department of Labor convened all the rapid response coordinators throughout the Midwest to make sure that we provide a consistent level of service and to help states with their planning efforts.
The administration approach realizes that there is no single agency that holds the key to economic growth, and that there is no magic bullet. The challenge that the regions face did not appear overnight and they will not be resolved overnight.
Credit for businesses, cleaning up blighted properties, transportation issues, job training schools, public safety and health care are all integral parts of the solution. Local and national foundations also have a role to play, and we've begun to find ways to reach out and partner with them.
State and local governments have and must play a central role in these efforts, reflecting choices that each area must make about how best to use their assets. Our comprehensive recovery strategy will not only recognize but it will support these heterogeneous local efforts.
Families and workers in auto communities face challenges unlike many of us have faced in our lifetimes. I share the president's commitment to helping these workers and communities, both in the near term as we go through the recovery, but over the long term to make sure that they fully share in our economic prosperity.
I look forward to working with the members of this committee, and thank you for the opportunity to be here today.
SEN. DODD: Thank you very much, Doctor. And I'm going to ask the clerk to put us on five minutes and follow it fairly religiously here. We've got a lot of members and I want to get around -- the second round usually thins out the membership and we can spend a little more time on the second round if we get to that point.
And I'll leave the record open. I know some will be coming and going, and so the record will remain open for questions to be submitted to our witnesses, and would ask that you respond to them in a timely fashion to us.
Let me begin with you, Mr. Bloom, if I can. And I'll wrap -- in fact, a question for you, Mr. Bloom, and for you, Dr. Montgomery, and then give both of you a chance to respond to them.
First of all, the administration has taken bold action, and there's been controversy, clearly. As you've heard just in -- both in Senator Shelby's and my opening comments, a lot of questions being raised by people across the spectrum.
And while there are going to be a lot of job losses obviously associated with this restructuring, I for one subscribe to the notion that had you not taken this action or tried this action, that the job losses and the effect on our economy would be far more calamitous than it is even with the account of erosion, talking about maybe down to like 90,000 jobs in automobile manufacturing from some 340,000 only months ago, not to mention the impact on retirees and benefits and pensions.
So it has been a major blow to our economy. But inaction, as I said, I think would have been worse. And the liquidation of GM and Chrysler would result in hundreds of thousands of jobs and related jobs being lost. So the questions are the following:
Treasury's proposed equity stakes in GM and Chrysler are giving people great pause, as you've heard already just in the full opening statements that Senator Shelby and I have made. Why did the Treasury take such large equity stakes rather that providing these companies with more loans?
Number two, explain, if you would, how the Treasury determined the size of these stakes that are to be taken, and given the Treasury's large stakes in these companies, particularly GM, how will the United States government quickly extricate itself?
As I said in my opening comments, I'd like us to be out of this business yesterday. Obviously that's not going to happen, but the point is I think a lot of us would like to see us get beyond this, get out of it and get these businesses back to functioning on their own. Given the stakes we have, how easy is that going to be to achieve?
And for you, Dr. Montgomery, I admire you taking on this job. The president obviously has a lot of confidence in you. As I understand, you have no budget to operate really with, other than what exists around. So we need to know if we can do anything to help.
Obviously all of us, some more than others, our colleagues from obviously Detroit and Michigan, from Ohio Senator Brown, Senator Bayh just come to mind immediately. I presume all of us here are being adversely affected by job losses, some more than others. And obviously we want to help our communities during times of readjustment like this.
So what additional tools are you going to be asking us, or will the administration ask of us in the Congress, to be helpful for you to perform your job? Holding town meetings are great and listening to people are wonderful things to do, but I suspect the people who show up at those meetings want to know what, if any, kind of help is going to be there for them as they try to find a new economic path for themselves and their families in the midst of this economic hardship.
So we need to get some additional specificity as to what you're going to be asking of us and how we can help minimize the kind of economic blows this community is going to be facing. A response to the questions, sir.
MR. BLOOM: Thank you, Senator. Let me try to address your three questions if I can.
In terms of the equity stake and why equity and why not debt, let me answer that this way. The size of the stake and the determination was done through the following process:
The first thing that happened was the companies put forward a business plan, which we very vigorously reviewed and challenged them on but eventually came to a business plan, and through that business plan really a financial need was determined because we saw how much money they needed to right-size their business, to take the necessary steps; in the case of General Motors, in the bankruptcy, to pay off some of the secure debts.
So there were a whole variety of needs that the company had, and that really determined the sort of starting point from the discussion.
The second step was directly on your point, which was how do you determine how much of it should be debt and how much of it should be equity? And obviously, as I said in my opening comment, the president did not start out with wanting to be a shareholder, but the dilemma we faced was that one of this company's core problems for a lot a lot of years was that it was too highly leveraged.
So for us to try to fix General Motors with more debt would simply have not fixed the problem. General Motors' key competitors, among them companies like Toyota and Volkswagen, have very minimal levels of debt that approximately equal either to the amount of cash they have on the balance sheet or to one year's profit.
So we were very mindful of trying to set up General Motors to have a competitive balance sheet, because that is one of the competitive weapons in the marketplace. And so that really left us that if we were not going to overburden the company with debt, then the only remaining security we could have would be equity. And certainly we did not want to give this money away -- this is the taxpayers' hard-earned money -- and so the determination was to take equity.
In terms of the size of the stake and how that was determined, that was determined in arms' length dealings with the other key stakeholders to the company who wanted to also be owners. That included the bond holders, where we had a vigorous debate, and the UAW on behalf of the retiree trusts, and they obviously wanted more equity than we wanted to give them, and we wanted to give them less because on behalf of the taxpayer, the objective should be to get as much as you can, to get as much value as you can out of the enterprise.
So it was really determined through arms' length negotiation. The other equity shareholder in General Motors is the Canadian government, who is also making a very sizable investment. But in that case, they're investing side-by-side with us, and so they're proportionally getting the same amount of equity as we are per dollar invested. So that part of it was just straight-up, but to the others, it was simply arms' length bargaining.
On the question of how we get out, obviously, this is a key issue. The president's been quite clear that he's a reluctant shareholder and he wants to exit as soon as practicable. Now, as practicable in this company is not going to mean tomorrow morning.
When this company comes out of bankruptcy, it's going to be a private company. The new General Motors is not going to be publicly listed. It will take some time for it to achieve a listing on the stock exchange, do what's called an IPO and begin to trade its shares publicly.
We would expect that would likely happen sometime in 2010, and that would be our goal. And then, after that, there will be an orderly process where these shares will be disposed of. But it needs to be orderly, because, again, these are taxpayer dollars. And while the president didn't want to be a shareholder, once we have become a shareholder, we certainly want to achieve fair value for those shares so the taxpayers can get back this investment.
SEN. DODD: Thank you.
Quickly, Dr. Montgomery. My time has already --
MR. MONTGOMERY: Yes, the initiative that we're undertaking is using the current resources provided under the Recovery Act, which really provides an unprecedented level of dollars that we can use, either support -- as Mr. Bloom has pointed out, to support the industry, to make sure that the companies are viable, step one; to talk about how we support the suppliers and the Treasury through its suppliers support program, the Small Business Administration through its 7-A loan program, and through its dealer program all have made efforts to support suppliers and keep that part of the sector viable.
As far as the workers are concerned, there are over a billion dollars in additional funding, multiple billions of dollars in additional funding for job retraining assistance, on top of which, of course, we've extended and expanded unemployment insurance.
As we think about going into the longer term and the new growth potential, there are in the Recovery Act funds within the Department of Energy to make new investments in different sectors, to grow different areas of the economy, everything from smart grid to alternative energy to modern fuel-efficient cars and next-generation vehicles.
And so there are a variety of different currently available resources to make investments, and my job at this point is to make sure that people in these regions have full access to those dollars. As we go forward, it may turn out that additional investments are necessary, but right now we want to make sure that the current investments are being fully utilized.
SEN. DODD: Well, I appreciate that. I'm sure my colleagues will have some additional questions along that similar line.
But let me stop there and turn to Senator Shelby.
SEN. SHELBY: Mr. Bloom, following up on Senator Dodd's question a minute ago, how many years do you think the government will be involved in General Motors, in Chrysler, as far as their investment? Would it be, in your judgment, three years, five years, 10 years, 12 years, or what? You've got some kind of judgment there. You say it's not going to be quick to get out.
MR. BLOOM: Yes, Senator. As I indicated, the sort of legal framework in which we are, which is to say a private company and then an IPO, presents a certain amount of a kind of a runway period.
Senator, at this point we do not have a specific target in terms of years. The factors that will influence that will be many -- how the market is doing, how the capital markets are doing. We are going to be a very large shareholder in a company. And so, as you know, for a large shareholder to be selling shares, it can be disruptive to the other shareholders. And so we want to be mindful of that.
At this point, the president's direction is to get out -- his phrase in order to us is "as soon as practicable." But beyond that, we do not have at this point a defined time frame.
SEN. SHELBY: Will you put together a plan, though, that you could operate a blueprint, some architecture? You got in. The question is, how long will the government be involved in running a huge manufacturing or owning a huge manufacturing plant? I think that's a fair question.
MR. BLOOM: It is, sir, and I want to appreciate your point. We are owning it. We are not managing it, sir. And that is important, and the president's been clear on that.
But to your question, I think --
SEN. SHELBY: But you are involved, aren't you, as a stockholder?
MR. BLOOM: There will be a very limited involvement as a shareholder. The president has issued a series of guidelines of how he intends us to act as a shareholder. We do not intend to involve ourselves in day-to-day management, those sorts of decisions. The shares will only be voted on what we call core governance issues, which is to say the election of directors or a change-of-control transaction. So, yes, there will be some involvement, but it will not be onerous or overbearing involvement.
But back to your question, there will be a strategy to get out. It will be to access the public markets and to sell when it's determined that the market is appropriate for selling. But I do not anticipate there will be a detailed blueprint, again, because the mere issuance of that blueprint, we believe, would be market-disruptive and would cause an overhang in the stock, which, again, would defeat the very purpose we're trying to achieve, which is to get out quickly, but to do it in a way that maximizes the shares for the benefit of the taxpayers.
SEN. SHELBY: Do you believe the government has put as much money in GM and Chrysler as they're ever going to put in, or do you anticipate more down the road, as Mr. Montgomery -- didn't say anticipated, but could be more money --
MR. BLOOM: Yes, sir, let me --
SEN. SHELBY: -- in all fairness to us and -- (inaudible)?
MR. BLOOM: It's a very fair question, sir. It is our absolute intent that this be the last assistance provided to these two companies. We've spent a tremendous amount of time diligencing the companies, and we've worked very hard to assure ourselves that this is their last visit. You never say never in this world, but our whole work, the basis of our analysis has been that this is a one-shot affair. We're going to do this, and then we're going to construct an orderly exit, and then it will be back to business as usual.
SEN. SHELBY: What if GM and Chrysler -- what if it doesn't work out as you're anticipating? Will you then recommend more money just to keep it going, to keep a few people employed? Maybe more than a few; a lot of people employed.
MR. BLOOM: It's very hard to speculate about a hypothetical, Senator, but I can tell you --
SEN. SHELBY: That could be more than a hypothetical.
MR. BLOOM: Well, I believe it is a hypothetical --
SEN. SHELBY: Okay.
MR. BLOOM: -- because I believe --
SEN. SHELBY: It is at the moment.
MR. BLOOM: -- we've constructed a conservative plan. We've what we call stress-tested it. We've looked at cases where the recovery is slower than most economists believe it will be, where the company is not fully capable of executing its turnaround. So we've looked hard at this question. And it is our belief, and our confident belief, that this will be the last trip well.
SEN. SHELBY: Let me -- I've just got a few seconds. What I deem conflicts of interest -- the federal government is now the principal labor, environmental and safety regulator, a customer, tax collector, financier and pension guarantor of two of the three domestic auto manufacturers -- unprecedented.
It also holds considerable equity positions we're talking about in each entity. And managing these varied responsibilities will engender conflicts everywhere. Other conflicts will arise by way of the government's investment in two competing entities.
What process have you put in place, if you have, to help identify, to manage, and then report such conflicts to the Congress, especially to this committee?
MR. BLOOM: Well, let me talk generally about the president's admonitions in this area. He has been very clear that the policy directives regarding things like the environment or CAFE or health and safety are not within our purview. We have no authority to deal with the companies on those matters and do not expect to have any authority.
Whatever the Congress passes and the president signs that becomes the law of the land, we would expect would apply to all companies who do business absolutely similarly. And the president has been crystal clear that he expects no special accommodation to either of these two companies in any of those areas.
We intend to be essentially a passive shareholder who is trying to get our money back so we can give it back to the American people. And we will leave to others to determine what the proper policies are regarding other matters.
SEN. : Thank you, Senator Shelby.
Senator Bennet of Colorado.
SEN. MICHAEL BENNET (D-CO): Thank you, Mr. Chairman.
Thank you, Mr. Bloom, Mr. Montgomery, for being here today.
I wanted to start by saying congratulations on the speed in which the Chrysler situation was dealt with in bankruptcy. As somebody who used to make his living restructuring companies in bankruptcy -- nothing this complicated -- this has been lightning-quick. And there were a lot of people that said it couldn't be done, that you weren't going to come in in 30 days. You didn't, but you came in pretty close to it. And I think that, at least in my view, is a major step forward to trying to create some credibility here on these matters. I want to say congratulations on that.
With all that said, I want to echo the chairman's view that the American taxpayers want to be out of these companies as soon as possible, as soon as practical, the language that you used. And all I can say is that I hope you're as successful at that as you have been getting this bankruptcy accomplished.
I guess, Mr. Bloom, my first question for you is whether or not you'd be willing or could shed some light on -- I'm sure it's in the bankruptcy documents -- on some of the underlying assumptions that underlay the arm's-length negotiation that you were talking about.
What were some of the assumptions relating to sales of automobiles in the United States, the cash flow of the companies? How did you and the other parties think about how to value, first, the enterprise itself, and then to distribute it to the constituencies of the bankruptcy -- (inaudible)?
MR. BLOOM: Yes, sir. Let me first thank you for those kind words relative to the speech. I think Benjamin Franklin said that an imminent hanging tends to concentrate the mind. I think that's what we had in the case of Chrysler, and I think it was a good tonic.
Relative to how we went about our business in this bargain, essentially the process was the following. The companies in each case came up with a business plan. And it is the management, obviously, who is responsible for putting forward a business plan.
We viewed ourselves essentially as a potential investor of the taxpayers' money. And so, as an investor, we went and then diligenced that plan. We criticized it. Whatever they said, we asked, "Did you consider this? Did you consider that?" So whatever assumption they made, we kind of flipped it on its head and asked the reverse. And obviously we used our own assumptions too. If they believed that SAR was going to be "x," we asked, "What would happen if it was .8 "x" or 1.2 "x"?
We did not fasten on any single point estimate, but rather, as a lender and investor, what we really did is simply acted, I think, as traditional investors were, which is to say, we looked at a variety of scenarios.
We asked ourselves: If SAR is higher, if SAR is lower, if execution is better or worse than planned, how do these things look? And that brought us to an enterprise value, using relatively traditional financial techniques -- multiples of earnings, discounted cash flows, I think the things that you would expect any third-party investor to look at.
Now, obviously, we're -- you know, we're the government, and we're -- and we're doing this because the president has directed that this is a critical industry. But, nevertheless, we tried, in every aspect of this, to be commercial -- to ask ourselves, what is the cash flow capability; what is the likely earnings capacity of the company, et cetera.
From that, we created models of potential enterprise value; and from there we engaged in the kind of bargaining that I described, which is to say, arms-length bargaining between a lender/investor and the various other stakeholders to the case.
SEN. BENNET: The tension the ranking member talked about, between our not -- the government not involving itself in the day-to- day management decisions of the company, which I think is certainly the right approach. But, sitting here thinking about, what if those projections don't come true -- if you have quarter upon quarter of growth, or lack of growth; if the companies do not, for example, begin to produce competitive automobiles that will compete in the marketplace, what is the government's role at that point, as the investor of our taxpayer money in this enterprise? I mean, how -- what if they don't live up to your expectations?
MR. BLOOM: Well, as the -- as a lender in Chrysler, and as a lender in General Motors, there will be covenants. There are covenants regarding performance. And lenders, as you know, have rights that we would expect to avail ourselves of. But, I know that the president is highly committed to not having this be -- to wander into the middle of the company and take it over.
The company will have a board of directors. It will be comprised of independent businessmen. And I would point you to the two gentlemen who've agreed to serve as chair of Chrysler and GM, respectively -- Mr. Whitacre, just announced yesterday, and Mr. Kidder, a week or so ago, two excellent individuals. We expect them to run the company.
SEN. BENNET: My time is up, regrettably, Mr. Chairman. So, I yield --
SEN. DODD: Thanks, Senator Bennet.
SEN. CORKER: Thank you, Mr. Chairman.
And, thank you both for being here.
I do want to point out that you're fudging a little bit on the history side of this. I think the administration, prior to you all coming in, laid out a loan program that said if the companies point forth a viable plan by February the 17th they would not call the loan by the end of March. They did not do that. And that would have precipitated you calling the loans.
So, I think to -- I think somehow or another everybody's letting you get away with this precedent thing. The fact was that the prior administration had set in place a set of procedures that said if the companies didn't present a viability plan that was appropriate, they would call the loan. You all did not do that. They did not put in place a plan. And, instead, you're putting in place a plan. So, I just want to get the record straight there.
But, let me -- let me talk a little bit about the money that's gone in. I think we got about $85 billion in the companies now. We got 50 (billion dollars) in GM; 16 (billion dollars) in Chrysler; we got 14 (billion dollars) in the Fencos (ph); we got 5 (billion dollars) in the suppliers.
I know that you've answered very affirmatively there'd be no more money, but my understanding is -- and I see some of the other senators sort of moving around a little bit with Section 136 money in the Energy bill, how much has GM applied there and how much do you expect them to get out of another "pocket," if you will? It's all our money.
MR. BLOOM: Let me try to answer your questions.
First thing -- just a very small correction, I think the total U.S. government commitment to Chrysler is $12 billion. The remaining funds are coming from the Canadian government, but that --
SEN. CORKER: But that $81 billion (dollars). You know --
SEN. CORKER: You know, we had a guy named Mark Zandi up here who told us if we put one dollar in these companies we'd end up between 75 (billion dollars) and 125 billion (dollars). Obviously, we're already -- have blown past that. And I think a number of us were working to try to keep that from happening.
But, to the 136 --
SEN. CORKER: How much money have they applied for, and how much will they get out of another pocket?
MR. BLOOM: I believe both of the companies do have applications in for 136 funding. My understanding is that is a highly competitive process, where many, many --
SEN. CORKER: How much have they applied for?
MR. BLOOM: I think they both applied, on the order of 5 (billion dollars) or 6 billion (dollars). But, I have no indication that they will necessarily receive it. It's a competitive process. There are dozens of companies applying for 136 assistance. If they are deemed worthy, they'll get it. If they're not, they won't.
SEN. CORKER: I just see some of the policy things that are trying to be changed around 136, which looks like they may have a really good chance of receiving it. But, let's just say that they get half of that, we're going to be at, you know, 86 (billion dollars), 87 billion (dollars) range.
On the UAW piece, I know there's been a lot said about shared sacrifice. I'd just like some "yes/no." It's my understanding that the existing employees are making exactly -- per the new contract, per hour, what they were making under the old contract. Is that yes, no?
MR. BLOOM: The answer to that is no.
SEN. CORKER: Ahhhh.
MR. BLOOM: Their base wages have remained --
SEN. CORKER: Their base wages are exactly the same.
MR. BLOOM: I'm going to try to answer your question.
SEN. CORKER: Okay.
MR. BLOOM: There is a cost-of-living improvement, which they had in their paycheck, which has gone away, of about $1 an hour.
SEN. CORKER: So, the base wages are exactly the same.
MR. BLOOM: The cost of living --
SEN. CORKER: The health care benefits are exactly the same. Is that correct?
MR. BLOOM: The active employee health is the same.
SEN. CORKER: I did notice that you did away with the Monday- after-Easter holiday, but my guess is they don't get very fearful when you come in the room to negotiate. How has that been -- that negotiation?
MR. BLOOM: Well, I'd let them speak for whether they're fearful or not. I think the negotiation between the UAW and the companies has been extremely vigorous and arms-length. I believe they've made very difficult sacrifices --
SEN. CORKER: Well, would you -- I don't want to go into a long dialogue here, but --
MR. BLOOM: Okay.
SEN. CORKER: -- I haven't heard many sacrifices yet. I'm talking about by active employees.
MR. BLOOM: About $7 an hour of reduction in their compensation package. To me, that's a pretty big --
SEN. CORKER: Things like paying time-and-a-half after 40 hours, instead of before, and those kind of things?
MR. BLOOM: The companies value the total package of concessions at about $7 an hour.
SEN. CORKER: Well, I guess what has troubled me about this is -- I know politics are not involved, although I would like to know who we call. I know you all are not involved in politics, but what is the number Barney Frank called about keeping the plant open in his district? Because if it's not at your level, I'd like to know who -- we've got the same kind of thing happening in Tennessee -- who is it that people do call to get those things changed?
MR. BLOOM: I can only speak for the administration, Senator. And I can tell you what the president has directed us to do, and what we're doing, which is we're not meddling in those matters.
SEN. CORKER: Well, who made that decision?
MR. BLOOM: The president.
SEN. CORKER: Oh, the president kept the plant open?
MR. BLOOM: No. I said the president directed the administration --
SEN. CORKER: Well, who is it Barney Frank called to get his --
MR. BLOOM: I can't comment on conversation between two people, neither of whom are in the administration.
SEN. CORKER: Well, let me ask -- let me go a different angle, politically, then.
You know, the Greatest Generation we all herald -- we have statues and tributes to the Greatest Generation, many of which invested in bonds in GM and thought that, throughout retirement, GM was going to be something that paid them. And I imagine there are circumstances in our country today where a GM bondholder -- an 80- year-old veteran that expected to get retirement, has been basically made toast by the decisions of this task force.
And then if you look at the UAW's component, I mean, they've come out really, really well, from the standpoint of their ownership. I know that you and Steve Rattner -- who I wish was here, I really respect him, and think he answers questions very clearly, as do you -- but, you know, I guess I've been a little discouraged to hear that, "Well, we don't need them anymore. They loaned us money, but we don't -- but we have to have workers."
And I think there's been an overt concern that, if you didn't do everything necessary on the worker side, that they would strike. I know on a number of occasions you all pointed to what happened in New York State. I just wondered if you might educate us a little bit into that thinking, and basically sort of these god-like decisions where, in essence, bondholders are stuffed, who invested in the company -- you don't need them anymore, but others are not.
MR. BLOOM: Well, let me try to answer that, sir.
First thing, I don't -- I hope we never would act like -- "god- like," or anything approaching that. I think there is sacrifice in General Motors to go around for everyone. There are enormous victims of the fact that General Motors is a failed enterprise. Bondholders are clearly among them; the communities who had come to rely on those jobs; the dealers, the list is very, very long.
Tragically, this company became insolvent -- very, very insolvent, and it's a failed enterprise. And that meant that the only way to revitalize it -- if we wanted to revitalize it, we really had three choices:
One, is we could have let it liquidate, with all the damage that would have caused.
Second, we could have made good on all promises, with taxpayer dollars. And that, I think, would have been many multiples of the investment that has already been made.
And third, we could have taken a commercial -- which is what we believe we did, a commercial approach to this restructuring. And in a -- and in a commercial approach to a restructuring, a business owner, a financial investor will look, in a pretty hard-nosed way, at who's needed to make the company succeed, going forward, and who's not.
And, for instance, in General Motors the decision was made, as it was in Chrysler -- which we supported, to take the suppliers, who supply the company with goods and services, and essentially pay them at 100 cents on the dollar, which nobody else got. And the reason was not about bleeding hearts for suppliers, it was about the commercial decision that if you don't have a steering wheel, you can't make a car.
And so commercially putting -- taking those unsecured claims of suppliers, and leaving them behind, did not make commercial sense. There are warranty holders -- people who'd bought GM cars, worth, on its balance sheet, many billions of dollars. The commercial decision was made that those warranty holders -- if you made them angry, probably wouldn't buy a new GM car; and your best base of future car buyers is prior car buyers.
So in all of these cases, we believe in a very clear-eyed way and with the company in the lead and the Treasury questioning them every step of the way, commercial decisions were made about how to treat each of the constituents. I believe that everyone has made enormous sacrifice, and I believe those sacrifices have met two tests. One, each case, the stakeholder did better than he would have if the government had not intervened, and second, he was treated in a fair way given the commercial realities of the marketplace.
As you know, in the Chrysler case, a bankruptcy judge heard over 30 hours of testimony on this exact set of questions and ruled completely in our favor in a very detailed 47-page opinion. It was upheld unanimously by the court of appeals, and the Supreme Court just decided not to take up the matter; they did not see any issues that rose to them. So I believe this has received enormous scrutiny by judicial officials at all levels and enormous scrutiny in the media, and we are quite comfortable and confident this has been done in a commercial fashion. Now, we understand there are a lot of disgruntled people, unhappy people, but unfortunately in a failed enterprise, that's inevitable.
SEN. DODD: Thank you, Senator Corker. Senator Bayh.
SEN. EVAN BAYH (D-IN): Gentlemen, I'd like to thank you for what you're doing. Mr. Bloom, I assume you could be making a lot more money with a lot less aggravation doing something else. So I'm grateful to you. And Mr. Montgomery, it was good being with you in Kokomo, Indiana. I'm grateful for the town hall meeting you had and for the floor plan financing that you announced while you were in our state. So thank you both for that.
Now, look, I'm one of those who thought that it was not an appropriate thing to run a gamble at this moment in time with the economy of the country. And there were some pretty sober analyses out there that if we had just allowed these enterprises to fail, it wouldn't have just been them; it would have been the supply chain, as you were pointing out; it would have been dealers across the country; it would have been middle-class people. A lot of communities would have been hurt by this.
And if the economy had been growing by leaps and bounds, maybe that's a risk worth running, but given the present state of the economy, I think the better judgment was to not run that risk as long as there was a credible -- and emphasize the word "credible" plan in place to try and maximize the chances that the taxpayers were going to get return on their money. You just don't throw money after a losing proposition, but if you have a reasonable prospect of getting repaid, then it was the right thing to do. So I'd like to focus on that issue.
Mr. Bloom, I understand you want to maintain maximum flexibility here, and there are just a lot of imponderables out there we don't know. You're a bright business man; you've analyzed this, as you were saying in response to several of m colleagues from a hard-nose business perspective. What do you think the chances are that the taxpayers will ultimately be repaid?
MR. BLOOM: Senator, I appreciate the question; it's a fair question. I think the best I can give you is that we have certainly looked at scenarios where over time a very substantial portion and potentially all of the taxpayer investment in General Motors will be returned. But I certainly, no means, would say that I am highly confident that that will occur. But I think there are reasonable scenarios where it could occur. There are obviously --
SEN. BAYH: The word "reasonable" at least in the law normally denominates a probability greater than 50 percent. A reasonable person would --
MR. BLOOM: I don't think I'd put a probability on it. You're perhaps a lawyer; I'm not.
SEN. BAYH: A handicap I constantly struggle to overcome.
MR. BLOOM: And you're doing a fine job. No, look, we've looked at a lot of -- we've looked at a lot of scenarios. And obviously that was a key objective for us, is to say to the president that there is a reasonable chance that this can happen, and that was a basis -- that was one of the key basis that we took when we insisted as we did that the company be aggressive in its business plan because at the end of the day, the ability to pay back the money through the sale of the shares is based on the profitability of the enterprise. The profitability of the enterprise is based on the hard -- one aspect of it is based on how hard-nosed they're prepared to be about dealing with their reality.
SEN. BAYH: Well, let me ask you this then. Based upon -- assuming that there's a reasonable improvement in market conditions, we're not going to be selling these few vehicles for ever, god willing. So we're into, say, GM, for $50 billion. It looked to me like their total capital is, what, about 83, 84. With 60 percent, that would get you to about 50. What kind of earnings per share at a normal market multiple do they have to achieve in order to reach that kind of market cap?
MR. BLOOM: Well, I'm sure you and many others can do the arithmetic. The company will have a trading multiple. It's hard to know exactly what that will be. You know, again, it will depend on a wide variety of factors but honestly I say what I said, which is I think there is a reasonable chance. It will obviously take a period of time and it will take a recovery in our economy, but obviously it's a key focus for us.
SEN. BAYH: With the amount of holdings that the taxpayers now have, you say there's no schedule, and I understand that. I mean, you know, the overhang is going to be substantial. Therein lies the problem. Perhaps you haven't contemplated this, but would just a periodic sale on some sort of preordained basis so you're not trying to time the market, and the market could kind of factor that in so that we would gradually whittle down our holdings over a period of time. Would that be something you'd contemplate?
MR. BLOOM: We have looked at a variety of exit strategies. You know, there is some history out there. You have the privatizations in Eastern Europe, in Western Europe, and in England. We've really tried to do a pretty wide canvas. And I think the conclusion is there's no perfect system. We looked at what Bill Gates did with Microsoft, which was a kind of a time schedule. I think our judgment at this point is that a prearranged time schedule will create more problems than it solves. But I can assure you that was one of the strategies that we examined.
SEN. BAYH: My last two questions, and I think you already answered one of them, is the -- in your view. I'll just answer them both and what you respond -- the supply chain, is it in a reasonably healthy condition right now? That's number one. Number two, if you're an employee or a shareholder of Ford, what do you make of all of this, and how do you compete?
MR. BLOOM: Your first question, sir, I can't tell you that the supply chain is relatively healthy. The supply chain, it's troubled. The OE sector is troubled. But we are monitoring it very carefully. We are deeply aware of the interrelatedness of the supply chain. When the supply chain goes down, even if you didn't have a view about saving GM and Chrysler, you've got Ford and Honda and Nissan connected to the same group of suppliers. So we are deeply aware of the interconnectivity of this, and we're monitoring it closely. We believe it can hold together, but we're very much mindful of that.
The Ford question is one that again we've looked at carefully. We believe that Ford is a good and competitive company. We believe they will be able to survive and thrive as the economy turns around, but obviously we're in constant dialogue with them. And I would also say that Ford has chosen affirmatively not to participate in this program, and that's their choice, but that was their choice.
SEN. BAYH: Thank you again, gentlemen.
SEN. DODD: Thank you Senator Bayh. Senator Johanns.
SEN. MIKE JOHANNS (R-NE): Thank you, Mr. Chairman. Mr. Bloom, reference was made in the previous question about intervention from a congressman, Barney Frank. And you can see why that leads to so much suspicion back home and even amongst members of this panel. I don't have that kind of power, and yet dealerships were closed in the state of Nebraska. Were you aware of that? Were you -- did the CEO or somebody call you and say, wow, what do I do with this? Barney Frank has called me and he wants this facility left open?
MR. BLOOM: No, sir, we were not.
SEN. JOHANNS: Did you learn about it then after the fact.
MR. BLOOM: We learned about it pretty much the same way you learned about it.
SEN. JOHANNS: Okay. Do you know of any special deals that have been made out there?
MR. BLOOM: We have not participated in any of that activity, and again, I can only speak to what the president has directed the administration officials involved in this to do and what we have been admonished to do, and what I believe we've done.
SEN. JOHANNS: So --
MR. BLOOM: And I assure you, we are going to continue to do what he asked us to do.
SEN. JOHANNS: So when you say you haven't participated, does that mean you don't know of any other special deals that were struck?
MR. BLOOM: I don't know what I don't know, sir. What I can tell you is that the auto taskforce has been explicitly and very clearly discussed with them, and I have -- we have regular discussions internally about this, and I can assure you that nobody from the administration has been involved in trying to pressure these companies to make specific decisions regarding dealers or regarding plans, and I know that we've been instructed not to do so in the future, and that we will not.
SEN. JOHANNS: Let me, if I might, focus for a minute or two here in talking about the rights of people. I didn't do a lot of bankruptcy when I practiced law, but I did do some. Is it -- is my understanding correct that if you're a shareholder and you just go through a regular old bankruptcy that on the other end of that bankruptcy, you're going to basically end up with nothing?
MR. BLOOM: I would say the overwhelming majority of bankruptcy cases are premised on the company being insolvent. And with the shareholders at the bottom of the totem pole, I think a shareholder should expect to not receive any recovery. There are few exceptions to prove the rule, but yes, I think that's a fair description.
SEN. JOHANNS: And that's what happened with the shareholders in General Motors. They basically have a stock certificate that is a worthless piece of paper.
MR. BLOOM: The company's plan does not provide for any recovery for shareholders. As you know, General Motors is an ongoing case, and so I can't predict with certainty the outcome, but yes, the plan that's been filed does not contemplate a recovery for shareholders.
SEN. JOHANNS: Dealers that have been notified that they will not be dealers for General Motors anymore, same deal; they're out of luck.
MR. BLOOM: I think the dealers would be expected to have an unsecured claim against what's called the old co (ph) estate, and they will recovery what other unsecured creditors recover -- (inaudible).
SEN. JOHANNS: So dealers, shareholders, they come out of this basically with nothing if the plan is adopted.
MR. BLOOM: I think they come out of it as they would in a traditional bankruptcy, which is to say as either unsecured creditors, or in the case of shareholders, even below that.
SEN. JOHANNS: Now, every once in a while, an employee would come to my office and say, you know, I'm an employee of X, Y, Z company. They just filed bankruptcy. They owe me two weeks' worth of wages. I'd say, well, you know, let's file a claim.
I hope you don't need that money to buy groceries, because I don't think you're going to see it." And I was always right. The employees had no rights.
Describe the rights of the employees like you've described for me the rights of dealers, the rights of shareholders in just a regular bankruptcy.
MR. BLOOM: The treatment of employees in regular bankruptcy varies all over the lot, largely because the entity trying to reorganize, if it's 363 sale, which is going on in the case of General Motors and was in Chrysler, the entity providing, being the sponsor of the new entity, it is going to make determinations about what the proper treatment is for employees.
And in the case of General Motors, the decision was by the management that keeping both salaried and hourly workers working and on the payroll was an important part of maintaining the continuity of the business and having a successful enterprise going forward. And so the determination was made to continue to pay wages in the ordinary course, as I indicated as it was for suppliers, as it was for warranty-holders. These are business judgments that are made by companies in bankruptcies all the time, and I've been involved in many, many bankruptcies where employees did receive continuity of wages. I've been in bankruptcies where they didn't. And honestly, it's been all over the lot.
SEN. JOHANNS: What influence did the administration have on that issue, did you have on that issue?
MR. BLOOM: I think the influence we had is to work with the company to try to come up with, as I've described to you before, a commercial approach to this question, which is to say, how do we best maximize the value of the government's investment, because the government's putting a huge amount of money into these enterprises, and the only way we get it back is if there's a viable enterprise going forward. And so the question we asked the company in each case is what is the smallest amount you have to give, because, obviously, like the smallest burden you can have, what is the smallest amount you have to give, consistent with building a successful enterprise? And every single stakeholder -- we challenged the company to make that kind of determination.
And that was the role we played, essentially, as I said. I said to an earlier question, we're not the management. We're not running the company. But we are the provider of capital, and so I think we had an obligation to challenge them to make sure they were acting in a thoughtful and commercial fashion, and that's what we tried to do.
SEN. JOHANNS: Let me ask one last question. I'm over time here, but let me ask one last question. During any of these discussions, as shareholder rights were being extinguished, as dealer rights were being extinguished, as people were sacrificing and our communities were being affected, et cetera, et cetera, did anybody with the administration, with the task force, ever say, you know, it seems like buying 60 percent of General Motors is a big enough decision where we should go to Congress and ask them what they think of this?
MR. BLOOM: I think the president was proceeding under the authority that was created through the creation of the TARP. And the prior administration made loans under that, and the president determined that these investments were appropriate and proper under the -- under that legislation.
SEN. JOHANNS: You agree with me, I would hope, that loans by the prior administration are a vastly different creature than ending up with ownership of 60 percent of General Motors.
MR. BLOOM: I would certainly say what I said, which is the administration believes it was proceeding under statutory authority that it was granted and doing the best it could in a very difficult circumstance.
SEN. JOHANNS: Last question.
SEN. BROWN: (Off mike) -- that's the --
SEN. JOHANNS: Okay. I'll --
SEN. BROWN: Go ahead, take a last question. But this is your third last question, but this is your -- (inaudible) -- last question. But go ahead, Senator Johanns.
SEN. JOHANNS: I'll stick around.
SEN. BROWN: Well, go ahead, go ahead. And we'll -- because I'm going to do a second round. Go ahead.
SEN. JOHANNS: Just in your roles, does that make you uncomfortable?
MR. BLOOM: In my what?
SEN. JOHANNS: In my role?
MR. BLOOM: Does it make me uncomfortable?
SEN. JOHANNS: That we never got an opportunity to say yes or no on this.
MR. BLOOM: Senator, I'm working as hard as I can under the direction of the president to try to save these companies and minimize the taxpayer dollars required to do it. It's obviously an exceedingly challenging task. We're all doing the best we can.
SEN. JOHANNS: Thank you, Mr. Chairman.
SEN. BROWN: Thank you, Senator Johanns. Thank you.
I will take my five minutes now. I appreciate very much both of you being here. I know the personal sacrifices you both make in taking these very difficult jobs, the hours away from home with small children. Mr. Bloom, I appreciate your driving from Pittsburgh every week. And thank you for that.
And I particularly appreciate that you took this commercial approach that both the Bush administration and the Obama administration want GM and Chrysler to move forward, not to liquidate those companies.
And there almost seems to be a perception in this room and among some not just in this body but elsewhere, perhaps, that the employees of -- that the employees took no hits, but everybody else did -- the dealers, the bondholders, the executives, the communities. And God knows, when you represent a state like I do, you see what kind of hits communities take and you see what kind of hits workers take. There are tens of thousands of workers that are losing their jobs, not just at the -- not just at Chrysler and GM, but the tier 1 suppliers and the tier 2 suppliers and beyond, many of them small, family-owned, non-union companies that pay 12 (dollars), $15 an hour or more, in many cases, but not more in many other cases. So I see that the $7 an hour term -- $7 an hour assessment you made, plus the lost jobs, plus what it's meant to the communities -- so a lot of us and I think the country appreciates that you have done this in a way that keeps these companies alive and, we hope, growing in the years ahead. I appreciate your generally optimistic assessment for the future.
I want to talk a little bit about last year, what happened and what -- where -- kind of where we're going now, and then I want to be more specific on one question about a community that's really -- another community in Ohio that's been hit hard by all of this.
Last year, some of our committee members worked with the Bush administration to provide non-TARP loans to the automakers. Our legislation would have required the companies to achieve concessions from various stakeholders within a strict time frame, as you recall, before you were on board. As my colleagues recall, the effort was -- the legislation was filibustered. The bill only died in the Senate.
Today, many of the same critics calling for specific concessions from workers and from bondholders are now saying the government-backed plans unfairly advantage one stakeholder over another. You have -- you have touched on that in response to questions from Senator Corker and Senator Bayh and others. But compare, if you would, the concessions in last year's legislation to those in the current restructuring plans being considered in the -- in bankruptcy court in both cases.
MR. BLOOM: I think in all cases the stakeholders -- and certainly including the UAW -- the concessions wrested from them were in excess of those that had been contained in the legislation that didn't pass, but were largely embodied in the loan agreements. So, in fact -- and I think that is appropriate, because as it worked out from December until April, the market got worse; the economy got worse; car sales were even lower than they'd been projected to be. So in light of that, we did insist that everybody give more, and that certainly includes the UAW. It does include the bondholders. But it includes all the key stakeholders.
SEN. BROWN: Understanding your response on questions on decisions that GM makes on -- whether it's a plant closing, whether it's a downsizing of a plant, whether it's an assembly plant or a stamping plant or whatever, an engine plant, whether it's what happened with dealers, you do have an ongoing oversight responsibility, obviously, of this whole restructuring.
A lot of us are troubled by some of the decisions. I mean, you can see the frustration on both sides here with what happened to dealers and how badly it was handled. And, I mean, I personally thought the dealers -- that the free market could work with dealers and let them figure out this -- let them succeed or fail and that would then clear out the number of dealers that we might have gotten to anyway that way. But that's not what Chrysler and GM decided.
But there's some other decisions -- I want to talk specifically about one. GM chose to close the most productive stamping plant they have. They have three stamping plants. Mansfield, Ohio -- full disclosure, my home town. I don't live there now. And then one in -- I'm sorry. They have, I believe, four or five plants. But one in Indiana, a couple in Michigan, other places, one in Parma, Ohio, too.
The GM stamping plant in Mansfield was consistently ranked higher, according to the competitive operating agreement that GM -- GM, it does its own assessment. It has the lowest manufacturing cost per ton. GM chose to close that plant. How do -- how do -- how does the administration -- I mean, they made that decision. I know it wasn't a political decision. The local congressman said President Obama should go and explain to the workers why he closed the plant. That was a political statement, to be sure.
How does the administration oversee the operations of these companies, to make sure they're making objective and transparent decisions? I mean, there were some arguments to close it, I assume, although they didn't make them very well. There were many more arguments to keep it open. It's -- 1,100 people work there. It's devastating to a community that size. We all know what these plant closings do to a community. What -- talk to me about your oversight and the demands for transparency in these companies that federal taxpayers have major investments in?
MR. BLOOM: Senator, certainly any particular plant closing is devastating to a community and certainly General Motors is closing a number of facilities. As I indicated before, we have made a pretty determined -- not a "pretty" -- an absolute determination that we're not going to get into micromanaging their decisions.
We certainly have encouraged, however, the companies to be forthcoming. So if a particular community or a local union wants an explanation of how a judgment was made, we would expect the company to talk to them, as we'd expect them to talk to dealers. But we're not going to go in on top of them and say why Mansfield and why not X. It just --
SEN. BROWN: Will you insist to them that they be more forthright to answer Senator -- some of Senator Johanns' questions about -- his concerns about the dealers? Will you -- will you insist to them that they disclose to their dealers how they made decisions, why they made decisions? Will they disclose to communities why and how they made these decisions? Is that your role?
MR. BLOOM: Recognizing that there is a competitive issue where public disclosure of certain kinds of information can put the company at competitive disadvantage, and so not being able to make a blanket comment like that, but I would say yes, that we would be asking GM and insisting that GM have an open and transparent dialogue with all of its stakeholders. And to the extent it's not, we're more than happy to facilitate that and insist that it occur.
Again, I want to be cautious, because there can be competitive issues where the public airing of information can be harmful to the company, but certainly as a general matter, we would expect the company to be open, transparent and responsive to communities, to stakeholders in these sorts of matters, yes.
SEN. BROWN: One last question. There was discussion earlier on Senator Johanns' questions about stockholders, creditors, others getting in line. But the dollars never get to them, I guess, in line. What's going to happen with people that have product liability claims, that somebody drove a Chrysler and that Chrysler malfunctioned and someone was paralyzed as a result of a defective product? What happens to their claims?
MR. BLOOM: Again, just to be direct with you, that is obviously a very emotional and difficult issue for those people who are victims, and nobody takes delight in not seeing them get all that they would like to get. But unfortunately, again, if one looks at the way bankruptcies are conducted, bankruptcies are about taking liabilities that companies can no longer afford and finding a way to discharge them in an orderly way.
And we would expect the company will act in accordance with traditional bankruptcy practice and law on how product liability claims are handled, which is to say that largely they would be a matter for the old estate to be dealt with, and therefore will not receive the full recompense they would hope. That is clearly a terrible thing for those individuals. But, again, there are a lot of people that General Motors made promises to that it can't honor and we really don't have an alternative, as I said, other than to essentially write an endless check to deal with that situation.
SEN. BROWN: There is no -- there was no money set aside by the two big auto companies for claims like that that would have been untouched in bankruptcy proceedings, I assume.
MR. BLOOM: There is not a separate trust or an insurance policy or anything like that. The companies are largely self-insured, both of them, on this matter. And in the Chrysler bankruptcy there was objection on that, and the judge found it to be, again, an ordinary course treatment.
SEN. BROWN: Thank you again, Mr. Bloom. Thank you, Dr. Montgomery.
SEN. BUNNING: Thank you, Mr. Chairman.
Last month, Secretary Geithner told this committee the government was going to -- and I use his word -- "try" -- that's his word -- not to interfere in choosing which plants to close or dealers to close or other specifics of bankruptcy plans. I should also note that he said he would come directly back to this committee once GM filed for bankruptcy, but I don't see him here today.
So I ask you the question instead. Did the government in any way influence the selection of plant or dealerships to close?
MR. BLOOM: I can answer that question very directly, Senator. The answer is no.
SEN. BUNNING: Okay. Thank you.
For the taxpayer's sake, in GM, just to break even, the new General Motors will have to get up to a market capitalization of about $70 billion. That is roughly 15 percent higher than GM's all-time high, when, as a much larger company, it was selling high-margin SUVs as fast as they could make them. It seems pretty clear to me that the taxpayers will never get back their money. So please explain to me how we're going to get our money back if, in fact, General Motors' new entity has to get up 15 percent higher than the highest General Motors was in the history of the old General Motors?
MR. BLOOM: Let me try to answer that question. I hope I was clear, Senator, that there is no guarantee that we would get our money back, but I did say there were scenarios where I thought it was reasonable that we could.
I think the only way I would disagree with your logic is that when GM was worth 15 percent less than that in its all-time high, piled on top of that equity was a huge amount of debt, so that the total value of the enterprise was, in fact, close to a multiple of that number. One of the things we've done by deleveraging the company is we've given the equity more space in the total capital structure. So I think if, in fact, General Motors returns to the total enterprise value that it had in that period, in fact, we would get all our money back. But I understand those days were reliant on high margin SUVs, et cetera. I do not think we would expect that those kind of times would be occurring any time soon. So our analysis is not based on that. I think what it's really based on, though, is much more conservative capital structure so the total enterprise value before the shareholders get their ownership, there are fewer deductions for the -- for the debt and other liabilities.
SEN. BUNNING: Okay. We all know that the original projections of auto sales was approximately 18 million units at the all-time high. And we know that we're now sitting at about 9 million units. And that's why we're having such major problems. Could you give us an estimate on where we would have to get to in sales to at least break even?
MR. BLOOM: Unfortunately, it's not just one number, because obviously sales matter a lot, but so does market share and so does margin and so does fixed cost. So you've got four or five different variables that have an interplay. What I can say is if you look at the company's projections, they do not project -- their publicly filed projections, they do not project a return to the 18 million level, nor to the market share that they enjoyed when they had that 18 million overall industry level.
So I think the company has taken a more conservative approach versus that hypothesis. And again, it would be -- as I said, it would be factoring all those things in together. Clearly, it will recover -- it will require some recovery in the economy, but I think most of us feel that at least some amount of recovery is pretty likely.
SEN. BUNNING: Well, I think you're absolutely right about the economy recovering. It's a question of timing.
MR. BLOOM: Yes, sir.
SEN. BUNNING: Just like when will General Motors come out bankruptcy, that's a question of timing. But the fact of the matter is, that's very important if, in fact, we're going to have an exit strategy for us to reduce our 60 percent stake-hold --
MR. BLOOM: Yes.
SEN. BUNNING: -- in General Motors.
MR. BLOOM: It is certainly important, and we're moving quickly as we can, recognizing that this a court-driven process. As a senator indicated earlier, we got Chrysler done in 41 days. I think, candidly, GM could be a little slower, because it is a more complicated matter, but we intend to proceed as quickly as we can, recognizing that all the affected stakeholders have rights and they're going to be heard by the judge, and that's a judicial process that we certainly respect. But you're absolutely right. The sooner we get out, the sooner we can get to organizing an IPO, the sooner we can begin to dispose of our stake. And clearly, we intend to do that in as orderly a way as we can.
SEN. BUNNING: Mr. Montgomery, I apologize not asking you any questions, but my time is limited. I'm sorry. Thank you.
SEN. BROWN: Thank you, Senator Bunning.
SEN. KOHL: Thank you very much.
Mr. Rattner -- I'm sorry, Mr. Bloom, a few -- a month ago, Mr. Rattner appeared before our committee in a closed-door meeting, and he said that it would cost more to retool the Chrysler engine plant in Kenosha, Wisconsin, and he felt that, in light of that, they're better off just moving those jobs to Mexico. With all of the taxpayer money that Chrysler has received, I don't understand, in spite of his statement, why we would move these jobs to Mexico. Doesn't it make better sense to utilize the retooling fund that is available for something just such as this, to retool that factory in Kenosha so that we can keep the jobs here in the United States?
MR. BLOOM: Let me try to respond to that, Senator. First, on -- I want to deal with a process point. I think clearly the company did a poor job of communicating with local elected officials and community folks about the Kenosha decision. And I believe the CEO has apologized for that. It was not proper and I hope we won't have a repeat of that, in terms of the communication.
In terms of the substance of the decision, again, what I hope Mr. Radnor said, because I believe these are the facts, is that Chrysler made a decision a couple of years ago to build two new engine plants, one in the U.S. and one in Mexico.
And by the time of this matter coming before us, hundreds of millions of dollars had already been spent on the plant in Mexico and also hundreds of millions of dollars in a plant in the U.S., so for us to go in and overturn that, number one, it would violate the basic principle that I indicated the president has insisted upon, which is we not interfere in the day-to-day management decisions; and, number two, just as a business matter, it would require walking away from hundreds of millions of dollars of invested capital. So I think the reality is, for reasons of both principle and practical business, this simply isn't the decision that can be revisited.
That is certainly a terrible event for the folks in Kenosha, and there's no way to make it a good event. The only thing I can say is, I think in fairness, the alternative was a liquidation of Chrysler that would have been far worse for everybody concerned, but certainly we appreciate the difficult situation, whether it's Mansfield or Kenosha, that these closings bring upon communities.
SEN. KOHL: Mr. Bloom, last week it was announced that the General Motors plant in Janesville, Wisconsin, was one of three plants in the running to make small cars and if that occurred in Janesville, 1,400 workers would be put back to work. Is the auto task force working with General Motors and the Department of Energy to help retool that plant in Janesville?
MR. BLOOM: What we are doing, sir, is trying to ensure that General Motors has a fair process where the three communities have a chance to have an open dialogue with it, where they make a fair and reasoned decision and are transparent with folks about the way they're doing it. But we are not insisting that General Motors locate that factory in Janesville any more than we are in the other potential locations. As I said in reference to, I think, a question of Senator Brown's, we are insisting that the company be forthright and that it deal fairly with Janesville as well as the other facilities, but we're not intervening and insisting that Janesville, or any other place, get any special consideration.
SEN. KOHL: Thank you. Mr. Bloom, as you know, there have been verifications of profitable dealerships that were doing a good job, making money, employing people, and doing exactly what General Motors or Chrysler would want them to do being notified that they have to close. Now, what's the point?
MR. BLOOM: Sir, the companies had determined that their dealer network was not over the long term maximizing value for the company. The companies have a far greater number of dealers than their competitors per car sold and analysts throughout the industry, I think of every stripe, have indicated that the companies are over-dealered. That causes, over time, the brands degrade, it causes pressure for price cutting; it causes the dealerships to not be as attractive in terms of their physical makeup, et cetera, and the companies determined that to be successful they needed to realign their dealer networks.
In that context, they persuaded us that that was generally a sound business decision, that to do it relatively quickly was, in fact, appropriate and would get to the good result as quickly as possible. From there, it was the companies' decision how to do it, which dealers to choose, and that was the decision they made. We insisted, and I think they did do it using fair and objective criteria of what were the dealers that were selling the most cars, had the best throughput, had the best other metrics that were objective metrics, and on that basis the company has determined that it cannot bring all its dealers forward and be successful. This is obviously, again, a difficult sacrifice for those dealers, but without these sorts of difficult changes, we're not going to have a successful General Motors.
SEN. KOHL: Well, I thank you. I'm still not comfortable with your willingness to accept, in this case, dealerships being forced to close who may have been in business, for example, 20, 30, 40 years and are profitable. They're running a business and the point of running businesses is to make money. That's why Chrysler and General Motors are going out of business, so here you have dealerships that have a history of profitability and yet they're still being told that they have to close, and you come before us and simply say, well, they made those decisions and we go along with it. I don't think that's a good enough answer, sir, but perhaps it's the best you can do.
SEN. BROWN: Thank you, Senator Kohl. Do you want to answer there or --
MR. BLOOM: I'm happy if you'd like me to take another minute. I mean, I appreciate, sir, that you're not satisfied. A dealer's profitability is not the only measure of whether or not that dealer network is best serving the long-term interest of the company and all of its stakeholders. If there are too many dealers in a particular area, while it may be that an individual dealer is making money, you still have the issue of whether or not he's sufficiently investing in the showroom to get returning customers, whether or not he's pricing the product in a way that is maximizing value for all concerned, whether or not he's offering the kind of service that brings people back.
Again, these are difficult, difficult individual decisions, but if we get in there and start telling the company you can do this and you can't do that, then we might as well make them an arm of the U.S. government. And I don't think anybody thinks that's the right thing to do. What we have to do is we have to give General Motors the kind of discipline to come up with a business plan that makes sense, where they can make money.
We have to put a first class board of directors in place and, again, I want to point you to Ed Whitaker and Bob Kidder, two first class businessmen who have agreed to chair these boards of these two companies, guys who've run big, large, complicated companies, done it well, done it effectively, and I think they give you a good sense of how the Obama administration intends to treat this matter.
SEN. BROWN: Thank you. Senator Kohl. Before I turn to you, Senator Hutchison, one comment about that. I think all of us are frustrated. I mean, on the one hand, we tell you we don't want the government running these businesses and then on the other hand we tell you -- (laughs) -- I wish that you would step in and make GM and Chrysler do this, this and this. And I understand we all do that.
I've done that, but I think none of us has really heard, and I know that a lot of the dealers think this. I know a lot of the public thinks this. I know a lot of senators and congressmen and women think this, that we've never really heard the economic argument made by Chrysler or GM to close these dealerships unilaterally the way they have, understanding they pick off in many cases those that might be the weakest in terms of profits and sales, although as Senator Kohl said, many of them are making money. Many of them, he said they've been around 20, 30, 40 years. I have some in Ohio that have been around 75 years they were closed, and it's tragic because all the dealers do so much for the communities and all that, so I just wish that the two major companies would explain better, sort of the economics of it, why they did it.
But the other point I want to make, and I apologize, Senator Hutchison. You mentioned Janesville. Have you made public the three communities, if there are in fact three? You seem to sound like there are, that GM is looking at for the small cars or would you like to make that announcement right now, Mr. Bloom?
MR. BLOOM: I know there are three. I know there's one in Michigan and Janesville. To be perfectly honest, I don't recall whether it's been made public, but we will get back to you on that.
SEN. BROWN: Is the third one in Ohio, by chance?
MR. BLOOM: No comment, Senator.
SEN. BROWN: Well done, Herb.
SEN. KOHL: I'm not telling you.
SEN. BROWN: Senator Hutchison.
SEN. HUTCHISON: Mr. Bloom, I have heard what you said to Mr. Kohl, Mr. Brown, Mr. Johanns, and it's not coming together for me, either. And I'm going to refer to the March 30th White House Determination of Viability Summary for the General Motors Corporation in response to their viability plan of February 17 in which the document states "the company is currently burdened with underperforming brands, nameplates and an excess of dealers. The plan does not aggressively enough act to curb these problems." It goes on to say that GM has been successfully pruning unprofitable or underperforming dealers for several years; however, its current pace will leave it with too many such dealers. These underperforming dealers create a drag on the overall brand equity of GM and hurt the prospects of the many stronger dealers who could help GM drive incremental sales.
Then, on May the 15th, the Treasury Department says that, as with the case with Chrysler dealer consolidation plans, the task force was not involved in deciding which dealers or how many dealers were part of GM's announcement, so it seems to me that the task force and the Treasury is saying you didn't act aggressively enough, you haven't cut back on enough dealers.
But you're saying to the public, "Gee, we're not involved in those decisions." And, in fact, now that we know what dealers are being closed, in both Chrysler and GM, there are profitable dealers that are being closed, not just underperforming.
And I still don't understand. When the dealer buys the car, the dealer provides the real estate. The dealer provides the showroom and the repairs and rents the signs. How is it a drag on the company? And why is the White House saying that an excess of dealers is a problem, even profitable dealers? It's a disconnect for me, I think, as well as many of my colleagues.
MR. BLOOM: Let me see if I can answer that. I think you certainly accurately quoted the president's statement, or I think a fact sheet from the 30th. That's certainly an accurate quote.
I think what we said, in addition, however, is we said that, overall, General Motors is burdened by excess capacity in many areas. We said that their plant footprint has excess capacity. Their dealer network has excess capacity; their white- and blue-collar ranks. All of these things are not commensurate with the current size and prospects of the company.
And so what we told General Motors when we rejected their February 17th submission is "You need to go back and you need to take a more aggressive approach." And, yes, that included dealers, but it included plants. It included white-collar head count and it included blue-collar head count, and it included every aspect of the company from the top to the bottom. And the company came back with a more aggressive plan to rationalize its dealer network.
I think what we said on the 15th was also true, which is we did not give them a numerical target. But we certainly did say, regarding plants, regarding dealers, regarding white- and blue-collar head count, regarding all these matters, that you need to be more aggressive, because our judgment was on the February 17th plan that they were not going to achieve the kind of profitability that would make them long-term viable.
It was their determination that this level of consolidation of the dealers was consistent with the path to long-term viability. And we did not say, "Why not five more or 10 more or five or 10 less?" We scrutinized the analysis in all areas and concluded that, overall, it was a proper plan and reflected a good business judgment, and therefore was worth investing taxpayer resources into it.
Again, I know you find this answer not satisfactory, but the simple fact that a dealer is making money does not indicate that the dealer network in that community is maximizing revenue and repeat customers and satisfied customers and the things you need to be a successful car company.
The company's large competitors are selling cars that -- excuse me -- are using dealers that have more than twice as many cars per dealer sold than GM or Chrysler do. Now, some of that is due to the geographic makeup of where the sales take place, where GM and Chrysler are selling in more rural areas. But even when you compare urban area to urban area, which would be an apples-to-apples comparison, the through-put of these other companies is far higher. And our judgment, and the judgment of many, many outside experts we've consulted, is this is one, certainly not the only, but this is one of the reasons why the companies have not been successful.
SEN. HUTCHISON: You know, I think what makes it so hard is because there are other points where there are competing explanations. For instance, in one case every dealer, four dealers in one town of over 100,000 people are being closed. And it's clear that a new dealer is going to be brought in, one new dealer, not one of the four that's being closed. And yet all of those dealers were doing fine.
So rather than giving the nod to one of the four that had been with you for years and years and years -- I don't mean you; I mean General Motors or Chrysler -- but there just seems to be a loyalty disconnect here. And also what you have just said is, okay, you want bigger dealerships that can do more volume sales. And yet you are doing bigger dealerships that -- sorry -- you are doing bigger dealerships, more volume. And yet, in the contract that is being put forward by GM, you are -- if they sign it, they take away their right to protest now any dealer that would come in within four, six miles.
So there's so much disconnection, which is why I think the dealers are feeling so wrong about this. And let me give you one other example of where I'd like to ask if the task force is going to take a position.
One of the dealers that's being closed, Chrysler in this instance, Chrysler Financial is asking for 3 percent of their loan balance to cover potential charge-backs. Now, Chrysler, of course, is now closed, but these dealers are going to be able to sell used cars, but not under the Chrysler name. So for one dealer who's been in business for 90 years in Texas, it's a $90,000 requirement for a $1,500-a-year annual risk.
Now, is the task force going to look into that kind of requirement and say there should be some protection here with our taxpayer dollars?
MR. BLOOM: Let me try to answer two or three of the points you raised, Senator.
Regarding the new participation agreement, I don't know if you're aware of this or not, but General Motors has been in active dialogue over the recent period with both the NADA, the national association, as well as their own dealer council. And I believe that NADA has put out a statement indicating that they find the modifications that have been made to the go-forward agreement, participation agreement, to meet the majority of the dealer concerns. So I think concerns were raised. I think you and others brought them to the attention of GM. And I think dialogue was had and I think a good result.
So certainly when members of Congress bring to our attention situations, we absolutely will do everything we can to facilitate dialogue between the affected stakeholder and the company. Now, we are not going to intervene and become the arbitrator of a dispute, but we certainly are going to ask and insist that the companies listen carefully to the concerns of any stakeholder. And if it's the particular situation you mentioned the Chrysler dealer or the participation agreement, which is a broader issue, we are going to insist that they be listened to.
But again, I don't want to mislead you. We're not going to substitute our judgment on every particular case. I do know, in the case of the Chrysler dealers that are not being brought forward, that every single car on their lots is going to be moved to another dealer with financing provided by either GMAC or other entities. And so all the dealers are going to be able to sell their cars at dealer cost.
Again, this was a matter that was raised. Members like you brought it to our attention, and I think a good solution was made. We certainly see our role as monitoring and staying on top of these things. And whether it's a senator or a mayor or anybody who identifies a stakeholder who's not being dealt with, we're going to insist on everybody getting a hearing. But as I said earlier, I don't want to mislead you. We're not going to get in and kind of arbitrate disputes between the company and its stakeholders. We're going to insist these companies manage themselves in a commercial fashion.
SEN. HUTCHISON: Well, Mr. Chairman, of course my time is up. But I will just say that, unfortunately, it is the taxpayers' money that you are largely managing. And I just think we have a requirement not only to help the people where plants have closed, which I think is huge and important, but also the many communities and the dealers that are getting shafted in many ways. And I don't think we, as taxpayers, would want to have that result. And I would hope you'd be a very strong watchdog on all of their behalfs.
SEN. BROWN: Thank you, Senator Hutchison.
Senator Bennet, thank you for your patience.
SEN. ROBERT BENNETT (R-UT): Thank you very much, Mr. Chairman.
Gentlemen, I don't envy you your task. Let me just make it clear, I recognize how difficult all of these issues are. And thank you for your diligence and your attempt to get them solved.
You've probably been around Washington long enough to know that's a set-up for what's coming.
MR. BLOOM: First 24 hours.
SEN. BENNETT: Yeah, okay. Just picking up a little quickly on what Senator Hutchison had to say, we will now in Utah have no Chrysler dealers from Las Vegas to Provo. A lot of people live between Las Vegas and Provo. Now, all right, it's a rural area. There are a lot of rural areas and a lot of miles. But by virtue of that decision, that guarantees that there will be no possible way for Chrysler to come back in that very large stretch of population.
And I've talked to some of the dealers there, and they're making the same point as Senator Hutchison is making, that if the market says, "Okay, there needs to be a dealer there," the dealers that have been serving Chrysler diligently for all of these decades, who have been shut out now, will not be allowed to set up the new dealership that comes along, and some new kid will show up -- new kid, not necessarily by age, but come along and say, "Okay, I have this very large market now exclusively to myself."
I don't know what you can do about it, but I'm working with Senator Hutchison and the NADA to see what we can think about doing about it, and we're going to be talking to you about that. I just warn you that that may be coming.
MR. BLOOM: Forewarned.
SEN. BENNETT: Okay. Let us talk for just a minute about the whole question now of the viability of General Motors. I take your point that the market cap can be achieved with a much better, cleaner balance sheet so that we don't have to compare the new GM to the old GM. But I would point out to you that in terms of a true vulture capitalista lot of people don't like that term, but that's basically what you are here as the government, as a true vulture capitalist you've gone exactly the wrong way.
General Motors, If a true vulture capitalist, I'm quoting from Holman Jenkins, but I like what he says, and he just happens to put it better than I can.
MR. BLOOM: I admit to reading it.
SEN. BENNETT: You admit to reading it. Okay. He says, The bail-out has deeply politicized the company's business model by privileging its money-losing domestic operations, saddled with UAWyou may not like that termon with money-making foreign ones. A truly commercial vulture investor would have done exactly the opposite, dumped North America, and kept the promising businesses in China, Russia, Europe and Latin America. And I have talked to General Motors people in these other countries, and they are profitable in these other countries, have been profitable. It's the North American activities that have cut us, have hurt them.
And if indeed you were to take General Motors, production out of North America out of the $9 million car market that Senator Bunning was talking about, it would increase the market share and thereby the profitability of all of the others.
Now the outrage politically would have been enormous for that, but if you're going to talk in straight market terms that would have been the thing to do.
I remember, I'll just say this and then get your comment on it, reading, I cannot tell you the date now, but it's four or five years ago, a cover story in Fortune Magazine called The Demise of General Motors. And they outlined at that time when the economy was doing very well that General Motors was doomed for a variety of reasons. And one of the interesting things they said was about the quality of General Motors cars and how everybody said General Motors cars were terrible quality, that at that time General Motors quality had gotten back to the point where it was as good as Toyota or Honda or any of the rest of it. And they quoted an expert who said, "The quality is very, very good, and no one will buy them because the reputation had come along."
And we're now facing the situation where that legacy in the market is still there. And I read columnists who say, "Well, now the government will insist that General Motors make good cars." I think General Motors has been making good cars for the last four or five years. But they are running into that problem.
MR. BLOOM: Let me try to --
SEN. BENNETT: Now as you deal with all that, do you have a reaction?
MR. BLOOM: Yes, I do, and let me start by trying to agree with you. It may not end there, but --
I think you're right. I think General Motors has been kicking problems down the road for a long time. I think that is an accurate description. I think very intelligent, thoughtful people have been talking about General Motors' deep and systemic problems for a long time. And they've not been listened to. And I think the president was clear, these problems have been kicked down the road for a long time.
I also agree with you that as little as three or four or five years ago GM's quality by a lot of measures was up at Toyota's, up at anybody's. The problem is, as you know, consumer sentiment lags reality because for a long time when the transatlantic cars were better GM was living on reputation, and then it flips. So these are problems that are not addressed overnight.
And I think that, and so you're right, this is going to take some time to evolve. The government is not going to insist that General Motors make good cars. That's not something a government can insist. What we can do, and I believe what we have done, is help the company to rethink its business model and to restructure its balance sheet. So I think we --
SEN. BENNETT: Let me just quickly, because I don't want to take too much more time, but isn't the government going to focus on North America and castrate General Motors overseas?
MR. BLOOM: Let me answer that question. I don't think it's accurate to say that we're castrating General Motors overseas. I would just observe to you, for instance, that their European operation in fact is also deeply troubled, and provisions are being made without United States taxpayer dollars to deal with their European operation. They do have profitable operations in other parts of the world. We're encouraging them to grow those, but not with U.S. taxpayer dollars.
The decision to make an investment in GM and its North American operations is obviously because these are United States taxpayer dollars, and so while we are a vulture capitalist, we're an American vulture capitalist, and the determination was to get them competitive in North America so they can make money in North America. And that's the focus of the activity. That is the only justification for taxpayer dollars because we're trying to preserve American jobs in American communities and American suppliers and American dealers because it is American taxpayers.
But the insistence, as any good vulture capitalist would do before he put money in, was to insist that there was a path to profitability, and to get competitive whether it be dealers or be employers or be debt level or be suppliers or be white collar, whatever it was, to insist that General Motors get competitive so their good cars can find space in the marketplace and can be successful. And that's been the effort, and that's what we've tried to do.
SEN. BENNETT: Thank you.
SEN. BROWN: Thank you, Senator Bennett. Before adjourning, Senator Shelby has one question and I have one question. My question will be for Dr. Montgomery. Do you feel like you're sitting there alone, Dr. Montgomery?
MR. MONTGOMERY: With little to do.
SEN. BROWN: Okay.
SEN. SHELBY: I'd like to get back on, quickly, on how we get out. We are in. We the taxpayers, the government, is in big time. We know this. How much thought went in just roughly from your judgment went into getting in to GM and Chrysler, and how much thought went in, how do we exit? How do we get out? I think the term was used earlier, could this be a economic Vietnam? Easy to get in, hard to get out.
MR. MONTGOMERY: I think that's a very fair question, Senator, and again I want to try to talk about our process. There was a tremendous amount of thought and debate about whether or not an equity stake was the proper vehicle. But again, I think when you walk down our decision tree, if you decide that you're going to invest in the company because today's capital markets are not going to provide capital to this company, the need of the company for capital is not determined by us. It's determined by an analysis of the business. But at the end of the day, the company has a forecast, you beat it up all you can, but eventually you've got to decide there's a certain amount of money that's needed.
Once you decide the money is the X, then you've either got to do it as debt or equity. I mean you could do it as a gift, but that seems crazy. So it's going to be debt or it's going to be equity. And the problem is, when you look at Toyota, when you look at Volkswagen, when you look at Daimler, when you look at Honda, you find companies that are not levered.
So I think you are driven to equity by the decision to try to maximize the return to have a successful company.
As far as the exit, it's going to be orderly, it's going to take advantage of a profitable company in our private capital markets.
SEN. SHELBY: What's it going to take? I know you don't know how many years the government will be in. You don't know exactly whether or not there will be more money. In other words, GM and Chrysler, things don't work out quite as you maybe thought they would and they need more money, and you go back to the well. What will he take to get them on their feet and the money back? It will have to be a pretty rosy scenario, would it not?
MR. MONTGOMERY: No, sir. I really don't think it is. I want to emphasize that.
SEN. SHELBY: -- have the scenario you would think.
MR. MONTGOMERY: What we believe that using a conservative set of assumptions about market share, about overall market, about margins, about cost, about all the things that would go in, we are strongly believe that this is the last money that GM will require. Now I can't make a promise about the future. But I can assure you that it has been a vigorously debated and thought about question, and it is our best judgment that that's the case, that this is it.
SEN. SHELBY: You say you believe, it's your judgment, you don't believe they will need more money. Now, what's your best judgment? I know you don't know, but your best judgment on when the exit will come on behalf of the taxpayer and will the taxpayer ever be made whole?
MR. MONTGOMERY: Senator, I don't have a point estimate best judgment about when we'll be able to exit. I do believe that there is a reasonable probability that we can get most if not all of our money back. But that's the way I would say it to the president, and that's the way I said it to him and the way I say it to you here today.
SEN. SHELBY: Do you believe it's very important for the government not to be owner of a huge industrial company?
MR. MONTGOMERY: I believe it is profoundly important that we exit this investment as soon as it's practical.
SEN. SHELBY: Thank you.
SEN. BROWN: Thank you, Senator Shelby. And I will ask my one question, and then I will call on Senator Johanns and Senator Corker if they would keep it under three minutes if possible.
Dr. Montgomery, let me talk about for a moment the issue of suppliers, some of their concerns. I chaired a hearing last month -- last month with economic policy subcommittee, the banking committee of manufacturers and access to credit. One of the witnesses was an auto supplier, and the message he and his members get regularly is if you supply for auto -- you're in a bank -- you're on a blacklist and banks won't loan to you. The administration stated that the updated SBA loan programs -- a source of credit for them -- that's not what we found typically because one of the eligibilities determined by banks -- and banks are not making those decisions affirmatively for them.
So I want to know what the administration plans are for SBA, specifically, for loans for them. Is there -- are there other things we can do beyond promoting, diversifying in the new clean energy areas through MEP, through the manufacturing extension partnership. What's the plan to provide financing? Are there national emergency grants for non-traditional auto-related workers, like dealers and suppliers? Are there new authorities from Congress like the Defense Production Act? I just want to pick your brain for a moment on how do we get this? How do we get suppliers to finance in a -- when credit is still pretty frozen if you're an auto supplier?
MR. MONTGOMERY: My impression, Senator, is that obviously the issue that you raise about suppliers and having access to credit is one that we hear a lot -- I heard a lot as I've traveled through the mid-West states. The administration obviously has tried to move on a variety of fronts, from the supplier program under the TALF/DARP, to the SBA, 7A expansion to the floor plan for using collateral, all three of which are trying to provide various different participants in the industry credit.
There are additional mechanisms to support dealers or to support workers. You had mentioned NEG grants, national emergency grants. Those are typically available for retraining, not as a matter of collateral, but there are ways that you can support the workforce at dealers through the provision of national emergency grants. And in fact, the states of Ohio, Indiana, and Michigan -- Ohio and Michigan have come in for national emergency grants and have used those. Minnesota came in for a national emergency grant to support a pooling of dealers, all of whom were relatively small in size, but in aggregate the total effect was fairly significant in terms of dealer layoffs. And so they did come in for a national emergency grant.
So there are a variety of different mechanisms. The SBA is one. Agriculture has ways to support rule facilities and getting credit out to them. So there are a variety of different mechanisms that we're already looking at, and obviously we're trying to monitor going forward. I've been told from the Small Business Administration that volume has picked up in the last couple of months, so -- and I think there are some positive signs, but clearly not out of the woods yet.
SEN. BROWN: Thank you. Senator Corker.
SEN. CORKER: Thank you, Mr. Chairman, and thank you both again for being here. My temperature got a little up when some of the revisionist statements about some of the past, and I didn't get to the point of I do want to thank you guys for your service. And even though I know that your political biases are showing in many ways throughout this bankruptcy, and I feel like that some of the decisions should have been made in different ways, that doesn't take away from the fact that you are away from your families and you're doing things that certainly are not as productive for you financially as in other ways.
Which sort of takes me down the path -- I know we've talked -- I have a bill -- you know, look, if you guys decide to close every dealer I guess in the country, that's certainly your decision. I have a bill that just states -- and I hope I don't have to offer it -- that states that you will at least make whole dealers that you close for their inventories and parts. And we actually have talked some with GM. I think they plan on doing that with all of their dealers. And I know they're going through a transition period.
I do think that when you look at the history of Chrysler, and the fact that the executives there, Jim Press and others were actually pressing dealers to take inventory, and in some ways even kind of threatening them. We've seen evidence of, you know, some pretty heavy-handed stuff, that if you're going to be part of our dealer network -- this was six months ago -- then you have to take delivery of these cars so we can show them as sales.
And I think that the way -- again, a political decision that you made because the amount of money could not have been that large, but the decision that you made in this bankruptcy to take these people all across the country that are small business people that borrowed money, that have signage, and may have borrowed four or 500,000, a couple of million in some cases to revamp their dealerships, and to basically say, you're terminated; you're toast, and we're not even going to take you out of your automobiles and parts, which we forced you take during our time of need, that was a decision that you and this taskforce made. You decided -- when I say godlike -- I mean, a 363 bankruptcy is pretty much a godlike kind of thing. I mean, you decided the winners and losers, and it marches on. The Supreme Court, by the way, just said they wouldn't take the course -- they didn't say -- take the case -- they didn't say grace over the decisions.
But back to the Chrysler issue, you know, there are no ill feelings on behalf of the taskforce with those decisions about just saying to all of these small owners across the country that have borrowed money, have taken inventory to try to keep the company alive and basically are saying you're toast because we don't need you anymore.
MR. MONTGOMERY: Well, again, Senator, I think that, as I said, the list of victims of a failed corporation is very wide, and it certainly includes dealers.
MR. CORKER: And we're not trying to get you to reinstate dealers you don't need, but just making sure that --
MR. MONTGOMERY: I do believe that Chrysler has agreed to buy back all of the cars from the dealers whose franchise agreement is not being renewed, and I believe that's being effectuated. My understanding is there is continuing dialogue between Chrysler and the dealer, and others like you about what to do about the parts. I can assure you we will stay on top of it. We will continue to monitor it.
These are not our decisions, but we are -- we are certainly in favor of the company working, whether it be senators or dealer representatives or anybody to try to -- to try to achieve fair and equitable resolutions. I do think in fairness that the intervention of you and others has produced a better result for the participation agreement going forward on GM, has produced a better result for the cars for the Chrysler dealers who are not being taken forward, and we would expect that dialogue to continue.
And the role we're going to play is to continue to encourage the companies to work with affected constituents, to try, in a commercial way, to deal fair and equitably. But we're not going to insist that they do X or Y because we're not running these companies.
SEN. BROWN: I'm sorry, my time is up. Senator Johanns, I apologize about Senator Joahnnas.
SEN. JOHANNS: You know, I have to tell you, at the end of this hearing -- and it's been a long afternoon, and we appreciate your patience. It is our government that comes across as heartless and indifferent, indifferent because you keep saying, well, even though we own 60 percent, we don't want to be in the middle of this; we don't want to run it. But you own it. I don't know how you sustain that position over time.
And then I -- Senator Brown asked a really good question about the products liability claims. It reminded me of a very poignant letter I get from a lady back home in Nebraska, quadriplegic, insured in an auto accident with a Chrysler product, battles Chrysler for years and years and years, finally right on the edge of getting into court, and the bankruptcy is filed. And of course she's not going to get anything from Chrysler. You know that. And yet you said in your testimony, well, she probably won't get as much as she wished. Come on, she's not going to get anything. You file a stay of bankruptcy, then you file a discharge, and the case is over.
We put billions of dollars into this company and then jobs go to Mexico while people here in the United States are losing their jobs, and yet we say, well, not going to touch that; we don't want to run this company. How many years can this go on?
MR. MONTGOMERY: Well, I guess I would say this, sir. I'm sorry that you feel like we've been heartless. I think we have worked to save hundreds and hundreds of thousands of jobs and thousands and thousands of dealers. The alternatives for this company, both of these companies was nothing for anybody, and the alternative that we've managed to craft here, while it is very painful for many -- very painful for many, preserves businesses. It can be successful going forward, can provide tens and tens of thousands of Americans with jobs, thousands of successful dealers, hundreds of thousands of supplier jobs, and strong community.
So I think while it has been exceedingly painful, and I would not debate a word you say about the particular circumstance or dozens of others that I'm sure exist, I think when you balance it out, what has happened here, while very, very difficult, has been a remarkable act of trying to save two great American companies at great sacrifice to many, but in the aggregate, I believe, it is far, far better than the alternatives that we faced. But that's our judgment and I certainly respect people's right to disagree with it.
SEN. JOHANNS: I'll wrap up with this with the 20 seconds I have: Hard decisions are best made in a transparent sort of way. For Congress to wake up like the rest of the American public on Monday and found out that over the weekend we had bought General Motors with all of the problems associated with it is really outrageous, really outrageous. Thank you, Mr. Chairman.
SEN. BROWN: (Off mike) -- for both of you for remaining. If you have further questions, either of you, anyone else, the record will remain open for seven more days. Dr. Montgomery, thank you for being here and thank you for your service. Mr. Bloom, thank you for being here. Thank you for your service.
MR. BLOOM: Thank you.